The Impact of IFRS on Financial Reporting Quality: Full vs Partial Adoption

As the adoption of IFRS is being considered by more countries, either by default or as a modification to their existing standards, understanding the impact of IFRS on countries with a different approach to the standards’ adoption is becoming increasingly imperative. While extant studies have primarily focused on the effect of the switch from local standards to IFRS over the years, examining the different approaches to IFRS adoption (the approach to fully or partially adopt IFRS) and its impacts on the quality of financial reporting is insufficient. This study investigates the relative effect of IFRS adoption and convergence on financial reporting quality. We use a sample of 58,452 (8,918 unique firms) observations collected between 2000 and 2021 from 8 countries and employ a difference-in-differences test. Using the Ordinary Least square (OLS) regression analysis method, the empirical results suggest that adoption and convergence lead to increased financial reporting quality (FRQ) post-adoption and convergence. However, difference-in-differences tests show that adoption leads to a significant increase in FRQ beyond convergence. These results should be interesting to regulators and those who set standards as they think about how to get more countries to align their local GAAP with IFRS. This study clarifies claims of similarities between full adoption and partial adoption of IFRS.